Rent regulation reconsidered
The Week in Housing 08/04/22
In a recent issue of The Week in Housing I summarised some of the recent research on rent regulation and its effectiveness. Today I want to look at a brand new report, published in 2022, by the UK Collaborative Centre for Housing Evidence. Rent Control: a review of the evidence base, by Kenneth Gibb, Adriana Mihaela Soaita and Alex Marsh, is of great value because it not only summarises what we know about the issue, it also draws out some of the thorniest questions with regard to how we can interpret and apply what we know about rent regulations in specific geographic and political contexts.
It is an opportune moment for this discussion as just this week the RTB begins mandatory annual registration of all tenancies (including AHB and cost rental), which will give us more detailed and comprehensive data on what is happening in the PRS. Moreover, the latest Simon Community Locked Out of the Market report showed that there were just 80 properties available to HAP tenants , which represent a decrease of 46% on the 148 properties which were available in the December 2021 study and a shocking 92% decrease on the 906 available in June 2021.
Let’s start with the main points that emerge from Gibb et al’s summary of the economic evidence.
· There is evidence that rent controls both do and do not impact maintenance levels, i.e. the evidence is inconclusive
· There is evidence that in cases where coverage of rent controls is not comprehensive (i.e. segments of the sector are de-controlled or unregulated), rent controls can increase rents in the do-controlled segment
· Rent controls lead to a ‘misallocation’ of housing, because ‘whereas free markets allocate commodities to those who value them most highly, rent-controlled properties may be allocated by a form of lottery to a range of people’. Some studies argue that the effects of this misallocation can be worse than any negative effects on supply.
Interestingly, the report notes that one of the issues with the economics research is that it tends to attempt to isolate one outcome rather than understanding the rental sector, and indeed housing, as a more complex system of interrelating processes:
“One of the key challenges in evaluating the impact of rent control – or indeed any other policy – is to encompass its impacts across several dimensions simultaneously. Many evaluations are partial because they seek to assess impacts on housing supply or maintenance or residential mobility, but don’t provide a comprehensive analysis across several dimensions. Rent control will have a range of effects: some impacts will be positive – for some people – and some impacts will be negative and it is likely that different groups of people will be affected in entirely different ways. But what is the net effect?”
Looking at the social policy/housing studies debate, the report highlights the fact that outcomes must be situated within an appreciation of specific housing regimes, defined by institutional, political and cultural contexts as well as path dependencies. Housing studies has typically been very focused on comparing regimes, much like social policy in general. From this point of view, the literature has long noted that countries with the most tightly regulated private rental sectors, for example, often have the largest private rental sectors (e.g. Germany). Thus, rather than examining the impact of rent controls on supply in a manner which abstracts the issue, we need to situate the debate in specific contexts.
This raises the wider issue of how we can make sense of the somewhat inconclusive evidence on rent controls but also apply what we do know to a given context. This is important because, as the authors note, there is little research on rent controls in the UK, and therefor the international evidence will continue to be important. The same goes for Ireland. And yet, extrapolating from the existing evidence is complicated for three main reasons.
The first is the issue mentioned above: rental and housing systems are complex systems situated within specific institutional/political/geographical contexts. Second, the form of rent controls varies hugely. We are all familiar with the first/second/third generation rent controls distinctions. But there a myriad of other varying features including:
· Are they comprehensive or is there a de-controlled segment;
· Are they enforced or do landlords in practice raise rents independently of the controls, as appears to be the case in Ireland
· Is there security of tenure and long term tenancies
· Is rent setting de-controlled at the outset of a tenancy; between tenancies; or following renovations?
· What is the power relation between landlord and tenants?
Third, analysis, especially within the economics literature, is shaped by the assumptions which underpin the models of rental markets that are uses in the literature. A large body of literature analyses the impact of rent controls under the assumption that rental markets are competitive, and hence the restriction of prices will lead to reduced supply, for example. However, there is increasing recognition that rental markets are not perfectly competitive:
In particular, perfect competition assumes perfect information and product homogeneity. However, housing markets are characterised by consumers with heterogeneous tastes and preferences and a housing stock offering different combinations of characteristics in different, spatially-fixed locations. This means that search and matching form a significant component of market processes. It also means that consumers do not view available properties as perfect substitutes. Therefore tenants will value their current property differently, and potentially more highly, than alternatives. Tenants will have an incentive to avoid the costs of searching to find a new property and the psychic and transaction costs of relocating. This opens up the scope for landlords to charge rents above those that might prevail in a perfect market.
This quote is something I touched upon in my paper on the ‘residential rent relation’, which I hope to return to next week. In the case of existing tenancies, landlords effectively hold a monopoly over a completely unique and irreplaceable good: the tenant’s home. Moreover, this home is largely created by the tenant themselves, via their investment of meaning, self-care and ‘home-making’’ over the lifetime of the tenancy (I will return to this next week). The report argues that rental housing as home is indeed often left out of the international research on the impact of rent controls.
According to the report, there is more recognition of the fact that rental markets are not perfectly competitive in the theoretical literature, but it is yet to inform much by way of empirical research. Understanding the impact of such theoretical assumptions is important because it effects the extent to which conclusions can be applied to our own context:
Critical to these debates is whether rental markets can be genuinely considered to be competitive. In a nutshell, the more competitive the market appears to be in a conventional sense the more one might expect to have confidence that the initial economics arguments will hold and rent controls could be expected to have some direct negative impact on welfare and outcomes.
What I’m reading
The big publication this week was TASC’s new report on land - I haven’t read it yet but it looks to be a fascinating exploration of one of the least understood components of the Irish housing system. Myself and Juliana Sassi had our paper, Making and unmaking home in the Covid-19 pandemic, published this week in the International Journal of Housing Policy. Three new papers on different aspects of the PRS were also published in the last couple of weeks. This one on landlord elites in the Dutch housing market; this one on the role of landlords in making a ‘house a home’; and this one on Covid-19, wellbeing and renters in Australia. Finally, several years ago, Spain’s leading housing activist Ada Calou, who was a key member of the PAH movement, became mayor of Barcelona as part of a new political party with very strong roots in radical social movements. What have they been able to achieve in terms of the politics of housing? This paper explores the ‘Barcelona model’.
On April 11th the ESRI are launching a report on family and housing among migrants in Ireland. Last week the ICSH launched a new report, authored by Michelle Norris, Aideen Hayden, Angela Palmer and Elanor McMahon, looking at mixed tenure and the AHB sector. You can read the report here and watch a video the launch here. Abstract submission of the Conference of Irish Geographers closes on 29th of April. And finally, the International Social Housing festival will take place in Helsinki this June.